Which term describes the income earned by a business that is retained rather than paid out as dividends?

The term that describes the income earned by a business that is retained rather than paid out as dividends is "retained earnings." Retained earnings represent the portion of a company’s profit that is reinvested in the business instead of being distributed to shareholders. This retained amount is crucial for funding various growth initiatives, such as research and development, expansion projects, and improving infrastructure, without the need to incur additional debt or dilute shareholder equity through issuing new shares.

Retained earnings accumulate over time and can reflect a company's overall financial health and its management's effectiveness in allocating resources. This concept is fundamental in understanding a company’s ability to manage its profits strategically, as retained earnings indicate a commitment to long-term growth by using profits to support operational and capital expenses.

Other choices refer to different financial concepts: capital gains pertain to the profit from the sale of an asset, net revenue refers to the total revenue minus any allowances for returns or discounts, and operating profit highlights earnings from core business operations, not accounting for retained earnings specifically. Understanding these distinctions emphasizes the unique role that retained earnings play in a business’s financial strategy.